The insurance process works pretty well most of the time, with most claims resolved in a more or less acceptable manner. Most insurance company adjusters want to get the full amount of benefits to customers as quickly as possible, have the claim closed, and get a fair paycheck for their work. Most insurance company adjusters are initially taught good faith obligations of claims performance. There are a number of insurers and insurance company attorneys who truly seem to be engaged in good faith claims teaching, discussion, and review of problem cases. They try to get even bad faith claims resolved fairly and quietly.

Problems occur when insurance company management initiates claims programs and cultures where full and prompt payment is difficult for the field adjuster, or first line of claims management, to obtain. When upper management sets goals to pay less on claims, they do so at the expense of customer service. Does anybody believe insurance executives would accept higher claims payments in order to obtain the alleged goal of great customer service when their bonuses are based on paying less?

This is the part of the insurance industry that needs cleaning up. Everybody should support the consumer measures suggested in Part One of this post –especially honest insurance companies and attorneys who are fed up with wrongful, slow, and underpaying claims practices which violate the law. Why would honest insurers support cheaters in their own business or tolerate their competitors doing so?

Good faith claims rules are known and often enforced by in-house and outside insurance company attorneys. These attorneys recognize that their clients owe policyholders a legal and regulatory duty of good faith. We often cite to this in our cases when our clients have not been treated fairly.

For example, our firm’s Knowledge Manager, Ruck DeMinico, was researching Zurich Insurance Company’s position of good faith claims handling for an upcoming mediation of mine. He came across some information demonstrating that Zurich insurance attorneys do not teach adjusters how to underpay or delay claims. To the contrary, his research came across a number of articles about and by Zurich’s in-house claims counsel, Daina Kojelis, which show a very sophisticated and behavioral side to good faith claims philosophy. This philosophy is also found in courses leading to the CPCU Designation–probably the most ethical coursework and professional designation in the insurance business. Kojelis gave a presentation at the 2005 Defense Research Institute, "Insurance Bad Faith: What Are We Facing and How Can We Avoid It?" She and Janet Brown presented a paper titled, HURRICANE UPDATE: CASES ARISING OUT OF CATASTROPHES, at the September 2008, "Critical Issues for Senior Insurance Executives and In-house Counsel," sponsored by the by Property Loss Research Bureau and the Federation of Defense and Corporate Counsel‘s Property Insurance and Insurance Coverage Sections.

In the Defense Research Institute presentation, she wrote:

“I. The "Bad Faith" Case is Won or Lost Before Your Counsel Ever Sees the File

a. The seeds of success or failure are in your file.

b. There are no silver bullets to avoid bad faith litigation, nor is there any absolute rule to avoid bad faith.

c. Common sense is the insurer’s most important ally."

I do not disagree. Common sense tells most in claims management that they cannot increase corporate profit and executive compensation through loss ratio "improvement" initiatives and expect that customers are going to be fully and promptly paid.

Policyholders should be told before purchasing insurance what they can expect from a corporate insurer when faced with a significant loss. If insurers, like Zurich, were obligated to disclose their internal claims handling guidelines, that are designed to maximize corporate profit at the expense of full and fair payments to their customers, they would have no need to spend money advertising customer service and care. The truth would be known.

I do not mean to pick on Zurich alone, there are a number of other carriers with similar issues. However, I suggest you review Zurich’s public presentations regarding claims practices just before Hurricane Katrina at this link:  http://zdownload.zurich.com/reports/en/20050630_investors_day_en.pdf. For an experienced insurance claims analyst familiar with the old "leakage" term used by McKinsey & Company since the 1980’s, the Zurich PowerPoint presentation appears similar to many other insurance company claims initiatives which are all designed to do one thing–make the claims department function better by, in part, paying its customers less on average per claim. The Zurich charts look like many of the Allstate Core Claim Process Redesign PowerPoint slides Allstate published on the internet last year.

Both of these programs assume that by doing claims with a "Best Practice," the insurer will pay less on claims. I think that an ethical insurer should adopt a hypothesis that if there is implementation of new claims procedures, claims payments may even go up. Why? Because as you teach adjusters what to look for so they do not overlook damage and benefits available under the policy, the amounts paid may go up even though they are also doing activities that make claims payments reduced. Yet, the vast majority of these newly implemented management themes have one basic goal–to pay less on average per claim– but do it giving great customer service and to not get caught in any regulatory compliance problems.

I have yet to see a claims initiative in any of these claims management programs that start off with something like this:

"we are conducting an extensive review of closed claims looking for new claims processes and methods to fairly pay our customers more benefits owed, educate them as to all the benefits available, and to look for instances when we have underpaid claims. We will then send all those customers we short-changed checks for the money owed, and tell our shareholders we truly are giving our customers great customer service, even though we make a little less money in the short run by doing so."

Nope, paying the full benefits is not the purpose or result. Every time a new claims initiative is implemented, it is about paying less and showing that the claims department is doing better than its competitors at paying less–just go through the Zurich claims management presentation for an example. Even though well meaning legal counsel may teach the good faith option, I think most get the picture that executive managers are trying to drive greater profit and personal compensation.

As the great Bob Dylan said, "You don’t need a weatherman to know which way the wind blows."